Innovative Deal Structures in Medtech Financing (2015 WSGR Med Device Conference)

WSGR 2015 Medical Device conference, focused on understanding the challenges facing the medical device industry, and highlighting the emerging strategies to navigate the new and complex world of medtech. Eminent team of panelists discussed “innovative deal structures” at WSGR medtech conference, in San Francisco.  The panel was moderated by Scott Murano, Partner at WSGR and panelists included Justin Klein with New Enterprise Associates, Evan Norton, Divisional VP at Venture Investments, Abbott Ventures and Mir Imran, Chairman and CEO at InCube Labs.  The panel shared insights from their recent experiences with corporate partnering transactions.

Justin Klein at NEA, with $3.1B fund, focuses on medical device, healthcare technology and biopharmaceutical investments.  Recently NEA funded three medical device companies, all of them in Atrial Fibrillation space.  “Scarcity of assets in AFib category positioned AFib as a very attractive category”, said Klein.  NEA was a strategic investor alongside others, including Abbott Ventures, in its more recent financing of Sunnyvale based VytronUS, with a proprietary cardiac imaging and ablation system to treat atrial fibrillation and other arrhythmias.  Although NEA funds companies from early stage, VytronUS is couple of years away from commercialization, said Klein.  NEA looks for interesting opportunities to syndicate with a broader variety of partners.

Evan Norton said his job at Abbott Ventures is to go out and find new business that Abbott can enter into.  Abbott Ventures focuses on emerging medical technology companies that have the potential to provide long term strategic growth options for Abbott.  Mostly AVI looks for early stage opportunities and makes it possible for early stage companies to gain critical access to capital, in return for bigger equity stake.  “Our job is to identify the next Spinal Modulation earlier”, said Norton, referring to Mir Imran’s company that was recently acquired by St. Jude.  AVI does not move to non-buying term sheet phase earlier, in the process.   “About a 4th of the capital in our syndicates, comes from China”, said Norton.

Among corporate venture funds, Abbott Ventures tends to be highly creative in putting together early stage deals.  AVI focuses on medical devices, drug/ device combinations, diagnostics and unique drug delivery technologies.  An absolute key aspect of putting together a deal is flexibility on both sides, said Norton.

Mir Imran, Chairman and CEO at InCube Labs, also runs VC fund at InCube Ventures, along with an online crowd funding platform at Venture Health.  Currently, there are about 9 companies that are incubated at InCube Labs.  The Spinal Modulation deal happened with SJM “because SJM was creative in putting together a deal they could live with and we could live with”, said Imran.  Most recent buzz has been around Imran’s company, Rani Therapeutics, which has developed a technology to convert injectable biologics (such as insulin and Humira) into pills, allowing millions to escape the needle prick.

“Rani has a powerful platform and many large pharma companies are talking with us to convert their injectable drugs into pills”, said Imran.  According to recent announcement, Novartis has joined previous investors Google Ventures, InCube Ventures and Venture Health, in a Series C round of more than $25M and similar deals are in the works with other investors.  The deal will allow Rani to evaluate Novartis molecules on the new platform, with equity investment and all expenses for testing of the molecules to be paid by Novartis, said Imran.  Imran avoided entering into license negotiations, at this stage.   “If the technology delivers expected results with Novartis molecules, then we can sit down and put a licensing deal at a later time”, said Imran.   

How has Imran managed to create mutually beneficial conditions for deal negotiations, with large pharma?  “From small company perspective, I don’t like to give away rights too early”, said Imran.  Most of Imran’s companies come out of R&D at InCube Labs.  “We keep our burn rate low and keep a relentless focus on execution”, said Imran.  

High Performance Computing Solution to Overcome Current Limitations in Mass Spectrometry

Jeff Peterson, Chairman at Veritomyx and CEO of parent company, Target Discovery, talked about how Veritomyx is focusing on convergence of high performance computing and state-of-the-art signal processing algorithms, to deal with the challenges encountered in identifying protein/isoform and metabolite biomarkers, due to limitations in mass spectrometry and supporting software.  The talk was in Sunnyvale, at event hosted by www.bio2devicegroup.org .

Modifications of proteins are responsible for exerting about 90% of the control of biochemical pathway changes. Accurate detection and validation of these changes offers hope for much stronger diagnostic insights into disease status and valuable treatment guidance decisions, enabling new effectiveness to advance the field of personalized medicine.  In turn, this is expected to help determine specific potential responses of therapeutic compounds in individual patients, allowing for more customized and successful treatment regimens.  Selection of properly validated therapies would save huge amounts of resources, money, and most importantly improve patient outcomes.

In the US, healthcare expenditure currently averages around $3T per year, said Peterson.  About 85% of that is spent on doctors, hospitals, ER, and end of life management.  Drugs make up only 12-15% of the total expenditure and diagnostics represent 2-3%.  The dawn of personalized medicine diagnostics now allows the right diagnostic to better select for the right therapeutic, and to minimize the patient’s descent into the chasm of other healthcare expenditures.  This paradigm shift is upending the value proposition in favor of newly recognized value in personalized medicine diagnostics leveraging overall healthcare expenditure decreases with improved outcomes.

A Shimadzu Ion Trap-Time of Flight mass spectrometer (center), HPLC-UV (left). (Photo credit: Wikipedia)

The search to find, identify and characterize new biomarkers across life science R&D efforts typically employs mass spectrometry.  In MS, ions from the unknown are accelerated and detected electro-magnetically, and software attempts to assemble puzzles of component ions into information identifying the unknown parent.  The output is typically analyzed in the form of a diagram, with X axis reflecting the masses of the individual ions, and the Y axis showing the  “relative abundance” of the ions detected.

 

However, current limitations in mass spectrometry, signal processing and identification algorithms often limit the availability of useful information.  Frequently, critical information remains hidden among overlapping peaks.  Overlapping peaks cause misdirection in mass and abundance results, delivering lower mass and abundance precision, and making it vastly harder or completely failing to correctly identify biomarker compositions.

English: Isotopic pattern of an peptide. Mass spectrum recorded by Q-TOF mass spectrometer. Polski: Obwiednia izotopowa peptydu zmierzona przy pomocy spektrometru Mas Q-TOF (Photo credit: Wikipedia)

The “PeakInvestigator™” software from Veritomyx, helps enhance the quality of science, saving critical time and R&D resources.  PeakInvestigator typically triples the effective resolution and reveals and precisely deconvolves overlapping peaks that go unnoticed by current mass analyzers and software.

Precision problems in the data not only waste a great deal of time, but they can misdirect attention and decrease the effectiveness of R&D efforts.  Abundance and mass errors produce spurious biomarker candidates and incorrect isotopic ratios for peak identification, said Peterson.  The PeakInvestigator software delivers up to 10X improvements in mass and abundance precision across a wide dynamic range when deconvolving previously hidden overlapping peaks.

The PeakInvestigator is based on statistically robust and reproducible methodologies, said Peterson and it enhances identification of unknown proteins, peptides, and metabolites to improve the ability to correctly detect and validate biomarkers.  Further, it’s advanced signal processing algorithms automatically adjust for differences in instruments and tuning variations.  These algorithms provide adaptive baselining and signal-to-noise thresholding.  This easy to use software solution eliminates the need for manual estimation of centroiding parameters or visual inspection of data before processing.  When summing up the advantages, Peterson also added that PeakInvestigator is being designed to be 21CFR11 and HIPAA compliant.

For companies interested in PeakInvestigator software-as-a-service solution, it can be easily integrated into the existing workflow.  Their simple public application-programming interface (API) inserts directly into company’s existing mass spectrometry workflow.  While already validated workflow remains intact, the PeakInvestigator algorithms can be leveraged on the existing data.  Currently Veritomyx has launched Free Beta Services collaborations for its PeakInvestigator deconvolution and centroiding software.  Free Beta Services will allow collaborators to apply certain PeakInvestigator high performance computing capabilities to their own mass spectral raw datasets at no charge.   Please contact www.veritomyx.com for further information.

 

The Future of Diagnostics: Consumer Driven Healthcare – VLAB event

Dr. Daniel Kraft is a Stanford and Harvard trained physician-scientist and moderated the panel event at VLAB http://www.vlab.org , at Stanford university.  Kraft chairs the Medicine track for Singularity University and is Executive Director for FutureMed www.futuremed2020.com . In this digital health age, healthcare will have to move out of silos, said Kraft.  Touting the future of wearable devices while demonstrating the four devices he had on his body, he prophesied, that there will now be disruptive innovation in healthcare, which may begin with an answer to the imminent looming question, “What do we do with all the data?”  We need just the right amount of information in a continuous and proactive manner, concluded Kraft.

Scanadu www.scanadu.com is one such technology, seeking to empower average people with medical tools that track their own health in real time.  Dr. Walter De Brouwer, entrepreneur/ investor, and CEO of Scanadu, demonstrated Scanadu Scout Vital Signs Monitor, a device that can measure vital signs like blood pressure, temperature, pulse oximetry, and respiratory rate in about 10 seconds.  The device is capable of communicating the results to an iPhone app, which allows users to track their health indicator over time, and share them with their care providers.  Not only do the patients get a picture of their health but they get it in a way that is easy to understand and they become more informed participants in their care.

Dr. David Albert, physician, inventor, serial entrepreneur and CEO of AliveCor www.alivecor.com , continued on the theme of patient responsibility, saying that it is one of the greatest challenges facing healthcare industry today, to get people to assume responsibility for their own care.  As the pressures for cost containment are mounting and increasingly as patients will be held responsible for financing their care, they will become more engaged participants.  Talking about his iPhone ECG, he insisted, it is a tool, not a toy.  Albert shared a takeaway from his work, “it always takes longer and costs more to develop” a new technology.  Looking ahead, according to Albert, we will have to make the paradigm shift from treating people, to keeping them healthy”, but the challenge is that no one is paying for that, right now.  His advice to the startups, “follow the money”, where there is high cost, that is where the pain points are.

Marco Smit leads the rapidly growing market intelligence business unit of Health 2.0 www.health2con.com , and mentors startups in Stanford’s StartX program.  Smit observed, there is $700 billion of waste in healthcare industry that includes fraud and inefficiency.  It is a challenge that needs to be solved.  Data is the fuel for innovation, said Smit.  But he cautioned, there will be a lot of churn and successful startups will differentiate themselves, with a strong value proposition.

Anne DeGheest, entrepreneur, angel investor, mentor for early stage startups, and founder of MedStars Ventures Partners and HealthTech Capital www.medstars.com , disagreed with her colleague, saying, “data for the sake of data doesn’t do anything.”  She offered that startups will need to focus on the pain point they are seeking to solve and the long term value proposition they are offering.  She suggested, startups go deep enough and talk to the users.  Looking ahead, said DeGheest, change is hard but it is coming and consumers will be paying more for healthcare, in future.